Oil Price Forecast - July 17

[dan_s]

Among the Wall Street Gang the team at Citi Equity Research has been at the bottom on their oil price forecast.
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-- The commodity team at Citi can appropriately rest on the
laurels generated by its on-target predictions of lower-than-consensus oil
prices in the last 12 months. But buried in 175 pages of new commodity
analysis Monday is the suggestion that the Brent benchmark could surge to an
$88/bbl price target this summer, before buckling under to the various
pressures that come later this year and in 2024.

The $88/bbl number was mentioned several times in a third-quarter 2023
commodities analysis sent to clients this morning. The targeted number
contrasts with action in the Brent market today that has seen transactions
between $78.25-$80.64/bbl. An $88/bbl number would equate to a surge of
$8.13/bbl ormore than 10% for the widely traded benchmark. The bank maintains
an $83/bbl price for the third-quarter average for Brent.

The investment thesis notes that the call for Brent is "tactically bullish."

Citi believes that the oil supply deficit this quarter may swell from 500,000
b/d to 1.5 million b/d and result in an eventual 18-month low of 57.6 days of
world supply. However, Citi analysts believe that summer "tightness" will
eventually lead to winter "softness." Inventories may dip by 130 million
barrels in the ongoing quarter but they will begin accruing in the fourth
quarter this year and perhaps be outright sloppy in 2024.

In short, the $88/bbl target is transitory, with Brent returning to the low
$70s later this year, and possibly scraping lows in the $60s in the second
half of 2024. < Citi hold to the belief that there will be a significant global recession in 2024.

Beyond the Saudi cuts and Russian promise to trim exports, Citi sees lots of
wildcard risks in the summer. Plenty of analysis is devoted to possible
outcomes should hurricanes threaten oil and gas assets in the Gulf of Mexico.
US combined gross exports of over 10-million b/d from that region make the
area crucial to world supply, and a Category 3 or higher storm would have
"massive implications for global balances."

On a broader level, the Citi team revised global demand growth estimates
higher, from 1.6 million b/d to 1.8 million b/d this year and by 100,000 b/d
in 2024 (to 1.4 million b/d). But the bank sees much less certainty in supply.
The "Fragile 5" producers -- Iran, Iraq, Libya, Nigeria, and Venezuela --
accounted for 900,000 b/d more oil in June 2023 than June 2022 but could see
increases or decreases of 2 million b/d between now and end-2024.

The fleeting nature of oil's strength leads to a call for locking in high
crude prices, time spreads, or refinery margins should prices indeed ramp
higher this quarter. Potentially higher interest rates will most likely reduce
backwardation and boost contango in coming months.

There is plenty of irony in Citi's musing on oil supply and demand. China was
the catalyst many bullish energy traders relied on earlier this year, and the
expectation was for headwinds from the US, European Union and OECD countries.
Instead, Chinese growth has languished while western countries have
overachieved.

In what might be described as a thought experiment, Citi raises the question
of what might happen to energy commodities should there be a ceasefire between
Russia and Ukraine. They see a 30% probability of a potential ceasefire this
year and note that efforts to end the war have been ongoing over many months.

They handicap the likelihood of a virtual stalemate at 50% and see 20% chances
for decisive advantage wins by either side.

"Given the costs of the battle to both sides, the lack of a significant
breakthrough increases the probability of a ceasefire sooner rather than
later," the report notes. The outcome would be bearish for most energy
commodities, but analysts doubt whether Russia would ever be able to regain
its former role as the premier exporter. Oil and gas represent about 50% of
all Russian exported products and account for about 35% of the country's
budget.

This content was created by Oil Price Information Service, which is operated
by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The
Wall Street Journal.